Steel prices in China have been on a downtrend for the past 1 month defying all estimates. Post Spring holidays historically being a period of renaissance wherein market emerges into a phase of brisk activity has surprisingly been dejection in 2011.
As a prelude to the New Year opening much hype was generated in anticipation of demand efflorescence as Government pompously announced slew of infrastructure and housing programs in the 12 Five Year Plan. However as the initial excitement withered it became lucid that it will take much more than mere promises to galvanize demand. The state contradicted its own resolve raising serious doubts about its intentions when the interest rates where peremptorily hiked by 25 basis points on the eve of year opening.
The incubating market was stymied and has not been able to recoup ever since despite the hopes of seasonality. Growth in production from January to February by 5.5% seems painful when the market is presently choked in the aftermath of blind feast. Inventory of rebar increased 117,870 tonnes to 7.737 million tonnes, the 12th consecutive week and inventory of HRC increased 36,580 tonnes to 5.156 million tonnes, the 5th consecutive week of small increases as well.
The government committed to a policy of guarded growth any turn of tide will be gradual soaked in caution. Mills are coerced to rethink on production cuts as stocks get bloated. At the same time iron ore prices though sulking under skeletal buying has the potential for nearly 20% jump in Q2 with mining majors already having broken ice with Japan. The resultant erosion of mills bottom lines has made them paranoid.
Resultantly market is dispirited and the gloom deepens with each passing. Prices keep on correcting endlessly. Market keenly awaits for that proverbial last straw arrest the collapse. Till than we can keep our fingers crossed expecting the seasonal demand to come as savior.
( Source: www.steelguru.com )